FRANKFORT— State auditor Mike Harmon has released an audit of the KentuckyWired program and the news isn’t good.

" /> FRANKFORT— State auditor Mike Harmon has released an audit of the KentuckyWired program and the news isn’t good.

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Audit on KentuckyWired shows its $100M over budget

09/28/2018 07:49 PM

FRANKFORT— State auditor Mike Harmon has released an audit of the KentuckyWired program and the news isn’t good.

Harmon said, “Right now we continue to pay the cost of this project without seeing any of the benefits. The current structure is not working. Due to the flaws in procurement it would be costly to change course. There are no good options, unfortunately. However, changing course is one of several bad options that should be at least considered.”

When it was passed, most of the funding for KentuckyWired would come from public private partnerships, or P3s, with $23 million from the Federal government and then just $30 million from tax payers.

However, Harmon says his office found that isn’t the case now. “Over the thirty year, P3 agreement, the Commonwealth and its tax payers will be on the hook for almost $1.5 billion.” Harmon reiterated, “now let me re-say that, $1.5 billion with a “B”, in total cost.

That amount would be if the project never turns on, because of availability payments.
Kentucky Wired was intended to be a $324 million project. Harmon says it’s $100 million over budget.

As for how much it would cost if the project is finished- Harmon says his office isn’t really able to calculate that. He explained, “The biggest problem is so much of the information that they had is speculative on how much revenue. Now, we do know if they were able to obtain the e-rate, we came to the conclusion that it would be about 45 percent of those availability payments.”

That E-rate is from schools, which were expected to switch from private internet service providers to KentuckyWired- putting that money into the project.

At a committee meeting in mid-September, William Landrum, the Secretary for Finance Administration told lawmakers, ““The FCC ruled that e-rate moneys could be used for the support of dark fiber network. And what this meant, is that these k-12 moneys, e-rate moneys, which are used in education for the advancement of technology, they could be used to support the Kentucky wired project. This e-rate funding equated to about $11 million.”

Harmon says the audit shows, proponents knew they wouldn’t be getting that money. From audit findings, Harmon said, “As early as January of 2015, officials at the Kentucky Department of Education expressed internal concerns that KentuckyWired would not be E-rate eligible. In June of 2015, Kentucky’s Education Commissioner sent a letter to the secretary of the Finance Cabinet clearly stating that the contractual setup of KentuckyWired prevented it from being E-rate eligible.”

The audit doesn’t say how the program should proceed, it just reports its findings. However, Harmon, a Republican, says he knows his preference, explaining, “ If there is a way to fund out of contracts but continue paying bonds, the commonwealth could mitigate the impact to its bond rating, but also avoid paying hundreds of millions of dollars for a statewide network that frankly may never be completed. That money, the savings could be used to seek new private partnerships and provide broadband on a more realistic model.”

While state auditors have finished the audit, Harmon says they still have more work to do. “In reviewing areas like procurement, the more questions we have. The unresolved questions include who authorized the significant changes between the original terms of the 2014 RPF and the project agreement in 2015 that places 93%,of the financial burden on the commonwealth. Now my office will continue to examine these issues and use any and all authority given to us, including the use of our subpoena power if we deem necessary.”

Harmon says he doesn’t think any of the creators of Kentucky Wired have done anything criminal- but following his audit, he has given his findings to the Executive branch ethics commission.

Steve Beshear, who was governor at the time, is now retired and out politics.

Phillip Brown, the Executive Director of KentuckyWired, says they operating ahead of its schedule Summer/Fall 2020 completion.
Brown says they are looking over the audit, and in a statement said, _The Kentucky Communications Network Authority is in receipt of the report by the Auditor of Public Accounts on his special examination of the KentuckyWired project and plans to thoroughly review these findings. Even prior to receiving this report, KCNA had identified and begun the process of addressing many of the same issues noted by the Auditor. Although not contemplated by the project agreements, KNCA has taken significant steps to enhance general direct oversight of the project by increasing its staff and internal expertise in construction and construction monitoring. KCNA appreciates the Auditor’s work, and we will continue our efforts to correct the problems and delays that were present from the KentuckyWired project’s inception in 2015.


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